This
appropriation funds routine and heavy maintenance on the state’s roads and
highways, much of which is currently done by state, county and municipal
employees.

Recommended Action:

The
state could create an asset-management system (as required by Public Act 499 of
2002) with the objective of maintaining a well-defined quality of roadbeds and
rights-of-way. Once technical standards are established, private contractors and
the existing municipal workforces would have the right to bid on the work in
competition with each other. Contracts would be granted to qualified winning
bidders.

Virginia’s Department of Transportation shifted the state’s interstate highway
maintenance on 250 miles of road to private contractors in 1997 using an
asset-management, performance-based system. Maintenance quality has improved
while costs have fallen. The program was so successful that four years later
the District of Columbia turned over the maintenance of its highways to the same
contractor, proceeded to complete pothole repair back-logs within a few months.

MDOT
has valuable experience contracting for road maintenance. As an experiment in
1994, and despite political opposition, the agency contracted with a private
firm (ABC Paving Company) for maintenance of 121 lane-miles of I-496 and US-27
near Lansing. MDOT extended the firm’s first $2 million contract once before
re-opening the contract for bids again in 1997. ABC won the bid again, this
time for 43 months of maintenance for $3.2 million.

MDOT
did not renew ABC’s contract after the 43-month agreement expired. It was
revealed at that time that MDOT had never calculated the state’s cost to
maintain the same roads maintained by ABC. Therefore, it was difficult if not
impossible to judge the financial success of the privatization effort. Various
attempts to estimate the state’s cost were made after the fact. Some suggested
ABC’s costs were higher than the state’s costs; others suggested ABC was
competitive even with municipal road-maintenance workforces that benefit from
large economies of scale. In the end, the state missed an opportunity to test
this type of privatization because it did not understand its own costs well
enough to compare them to those of competing bidders. MDOT could build on this
experience now by fully assessing its own costs of road maintenance so they may
be compared to those of private bidders.

Numerous studies of cost saving
and performance from competitive contracting for public services and
infrastructure — both around the United States and abroad, and within federal,
state and local governments — suggest that cost savings average between 25 and
30 percent over previous government costs.[3] If Michigan were able to achieve just 25 percent savings,
competitive contracting would yield annual savings of $58,227,775. Savings:
$58,227,775.